Ganging Up on Google
A phalanx of foes –– from eBay to search rivals and Uncle Sam –– is lining up to keep the search giant in check
The family of Joan Miro had a bone to pick with Google. The search giant used some of his images in its Web–site logo on Apr. 20 –– until Miro’s family very publicly complained Google was violating the Spanish artist’s copyrights.
The logo came down and the flap is already dying down. But other Google combatants won’t be so easily mollified. Yahoo! (YHOO) and Microsoft (MSFT) have long endeavored to erode Google’s lead in Web search. But now Google (GOOG) faces a new wave of restive rivals, curious government officials, and angry human–rights advocates.
EARNINGS POP. They range from online marketplace eBay (EBAY), which, according to The Wall Street Journal, has been talking to Microsoft and Yahoo about deals to blunt Google’s growing online power, to the U.S. Justice Dept., which wants it to give up data on search queries. This phalanx of foes could make life more difficult for the search phenom, whose stock rose 5%, to $437.10 a share, on Apr. 21 after reporting better–than–expected first–quarter earnings.
Truth be told, the Google backlash may not affect the company much in the short term. Though rivals and potential competitors clearly are worried about Google’s incursions into their territory, an outright battle seems unlikely. Advertisers such as eBay and Amazon (AMZN) need Google to drive traffic to their sites, and Google depends on their business for a significant chunk of its sales.
Even so, the forces lining up against Google seem to be growing by the day. Here’s a rundown:
Although potential deals with Microsoft and Yahoo! remain uncertain, eBay continues to mull partnerships with Google rivals –– and Google itself. But that’s only the latest of several new eBay initiatives and acquisitions that could reduce its dependence on Google and other search sites. For one, unlike some rivals such as Amazon, it has continued spending on other types of marketing, such as television ads, with a new ad campaign begun last year.
EBay also has been developing its own internal search technology, code–named Magellan. The technology is intended to provide more relevant search results on eBay, making it easier to find particular items without browsing through menus. Tested last year, it will be included in a new shopping site, eBay Express, due to be launched the week of April 24.
That site will present mostly new, fixed–price items in a new format more like online retail sites such as Amazon.com. What’s more, the new organization could help those listings show up higher on Google’s natural–search results –– the main results that advertisers do not pay for. That has the potential to reduce eBay’s need to buy search ads on Google for those listings. "It gives eBay a new resource to leverage in search marketing efforts," says Pacific Growth Equities analyst Derek Brown.
The online retailer, another big buyer of search keywords, has also sought to reduce its dependence on Google and other search sites as the cost of keywords has risen. Two years ago, it launched its own search site, A9.com, and offered Amazon buyers a small discount for using the site. However, A9 has not gained much traction so far.
Amazon and others are also miffed that Google is poaching a lot of engineering and management talent in the Silicon Valley and beyond. The person who developed eBay’s new search technology, Louis Monier, left for Google last year. Udi Manber, the former CEO of Amazon’s A9 search site, departed earlier this year.
3. Newspaper companies.
It’s not just online rivals that are concerned. Newspaper publishers are realizing that the Internet presents a fundamental threat to their business, and are finding ways to fight back. About 35% of the newspaper industry’s revenues comes from classifieds, and that revenue stream is vulnerable to online juggernauts such as Google and Craigslist.com.
"Their revenue model has been extremely dependent on the sale of classified ads, such as autos, travel, and personals. And one by one, those categories are shifting to the Web," says Ken Marlin, managing partner and founder of media and tech investment bank Marlin & Associates in New York.
Until now, newspapers have often been compelled to work with giants such as Google, but on less–than–ideal terms. "That is starting to change. Newspapers are starting to realize that they have alternatives to working with companies like Google," says Craig Pisaris–Henderson, who was –– until Apr. 4 –– CEO of Fort Myers (Fla.) publishing services company Miva, which sells newspapers a search–engine service designed to highlight content from a paper’s own site.
That helps keep readers on a newspaper’s page, instead of sending them all over the Web, as Google would do. Miva also markets a service that helps newspapers generate revenue as their stories are passed around the Web. Readers are free to post and exchange stories as they wish. But the stories are embedded with an ever–changing base of ads.
4. Book publishers.
Google also has managed to rile up the publishing industry. Book publishers and authors have been up in arms against Google since early 2005, after the company announced its ambitious Google Print for Libraries project, now called Google Books. The project included plans to scan millions of books from five of the world’s largest libraries and make them searchable on Google’s Web site –– including copyrighted texts.
Major publishers and authors’ groups cried foul, saying that scanning books in their entirety amounts to copyright infringement. Google stresses it will only make "snippets" of copyrighted work viewable to users, and maintains that the practice falls under a special exemption in copyright law for research.
Now, the disagreement will be settled in court. On Sept. 20, the Authors Guild filed a class action against the search giant. One month later several major publishers, including McGraw–Hill (MHP), owner of BusinessWeek Online, Pearson Education (PSO), Viacom’s (VIA) Simon & Schuster, Penguin, and John Wiley & Sons (JWA) filed their own suit against Google for copyright infringement. Unperturbed, Google continues to scan library books. Both suits won’t go to trial for several more months.
5. Telecom providers.
There’s also scope for a showdown between Google and phone–service providers like AT&T (T) over proposed laws aimed at ensuring so–called Net neutrality. Google wants to ensure it retains unfettered –– and unmetered –– access to the networks that form the Internet’s backbone. AT&T Chief Executive Ed Whitacre has hinted publicly he’d like the freedom to charge tolls to Web companies like Google that provide services via AT&T’s network.
Google is already treading on telco turf with a plan to provide wireless fidelity, or Wi–Fi, Net access in San Francisco. Talk is, Google aims to make wireless broadband available at little or no cost in other metropolitan areas as well.
6. Adult entertainment industry.
On Feb. 17, U.S. District Judge A. Howard Matz ruled that Perfect 10, an adult–oriented Web site featuring "beautiful natural women" in the nude, has shown that Google’s image search likely infringes copyright law "by creating and displaying thumbnail copies of its photographs." In a 48–page opinion, Matz agreed that Google provides "an enormous public benefit." But he wrote that "the public interest is also served when the rights of copyright holders are protected against acts likely constituting infringement."
Russel Frackman, a lawyer representing Perfect 10, says the judge’s preliminary injunction requires Google to delete copies of Perfect 10’s copyrighted works from its database and to stop displaying them. "Search engines are important, but you don’t have to provide the underlying copyrighted material in order to be a search engine," says Frackman. "Google is one of the biggest infringing Web sites of images."
7. Search Upstarts.
Some $263 million in venture capital was invested in search companies last year, up 38% from 2004, according to researcher Dow Jones VentureOne. Most are targeting narrow niches. Become.com focuses on shopping search, while SimplyHired.com is a jobs–search site, and Oodle collects classified–ad listings from around the Web.
8. Uncle Sam.
Besides the business interests who’ve got Google in their cross–hairs, Google also faces the unwelcome attention of the federal government. Earlier this year, as part of a legal battle over the 1998 Child Online Protection Act, the Justice Dept. demanded that Google turn over a random sampling of 1 million URLs from its index and another 1 million search queries from a one–week period. The agency hoped to use the data to help it make a case that filtering software was ineffective in fighting online porn.
Justice made similar requests of Microsoft, Yahoo, AOL, McAfee, Earthlink, and LookSmart. But only Google challenged the subpoena in court, arguing that the reams of data could compromise company trade secrets and breach the privacy of Google users. In March, Judge James Ware of the U.S. District Court for the Northern District of California significantly pared back what Google had to turn over to Justice.
9. Human–rights groups.
Finally, Google has drawn fire from rights advocates for providing a self–censored version of its search product in China. People doing an image search on "Tiananmen Square," for instance, won’t see pictures of tanks and soldiers clashing with students, but rather serene images of the Beijing landmark. Google calls it the price of admission for serving the 1 billion residents of China.
But critics say Google’s longstanding Chinese–language site, hosted in the U.S., had become very popular in China, second to only Baidu.com in local market share, so it didn’t have a burning need to cooperate with officials. The criticism hit a crescendo in February when Google and other Internet companies testified before U.S. lawmakers about censorship in China. Still, the company has refused thus far to operate a blog and e–mail service inside China for fear that Chinese authorities could demand records and information on its users.
Will all this slow down the Google juggernaut? Probably not anytime soon. The wild success of search advertising, which Google continues to lead by far, leaves plenty of room to run. Concerns to the contrary were dispelled on Apr. 20, when Google reported first–quarter profit that beat Wall Street estimates by 25 cents a share, and its stock price soared (see BW Online, 04/21/06, "Google’s Giant Stride").
A beefed–up lobbying effort in Washington will help Google get its point across in the Net neutrality debate and other thorny policy matters (see BW Online, 10/20/05, "Google Goes Inside the Beltway").
But by plunging into new markets with seeming abandon, Google is creating a lot of enemies whose survival may depend on making sure it doesn’t succeed in them all.